Short-Term Impact of Red Sea Crisis; Anticipated Continued Decline in Transatlantic Shipping Rates in the Second Half of the Year!
By Vincent Wen Photo: Canva
Shipping rates on the four major routes between Europe and North America all exhibited a downward trend this week. To stabilize prices, shipping companies significantly reduced sailings post-Lunar New Year. A slight increase in rates is expected in March, but a subsequent decline may follow.
Despite the recent increase in incidents of vessels facing attacks in the Red Sea region, providing some short-term gains for shipping companies, industry analysts believe this situation is unlikely to alter the long-standing issue of excess capacity in container shipping. It is predicted that shipping rates may start declining again in the second half of 2024 as the situation in the Red Sea normalizes.
Following a significant drop in profits for shipping companies in 2023 after the historical highs during the pandemic, the container ship supply in 2024 is expected to face severe oversupply, with limited demand growth. Prices are unlikely to return to the peak levels seen during the pandemic.
In response to the current situation, most shipping companies have rerouted services from Asia to Europe, the Mediterranean, and the U.S. East Coast through the longer route around the Cape of Good Hope to mitigate potential risks. Shipping companies are maintaining flexibility in vessel scheduling, adjusting routes promptly to ensure service continuity. However, despite short-term supply challenges providing some support to prices, the supply-demand tension in the container shipping market is unlikely to persist.
After a significant correction from the historical highs during the pandemic, profits for shipping companies sharply declined in 2023. Considering the expected severe oversupply in container ship supply in 2024 and relatively limited demand growth, prices are unlikely to recover to pandemic-era peak levels.
While recent attacks on vessels in the Red Sea have surged, providing some short-term support for shipping companies' profits, industry analysts believe this situation is unlikely to change the long-term issue of excess capacity in the container shipping industry. Predictions suggest that with the normalization of Red Sea shipping conditions, prices may begin to decline in the second half of 2024.
Impacted by the global economic slowdown, the consumption power of physical commodities is relatively weak, and the demand for goods and services is more balanced compared to the pandemic period. Total container shipping capacity is expected to grow by 7% to 9% this year, while demand growth is projected to be only 2% to 4%. Relevant institutions forecast that, without major special events, prices may start declining from the second half of 2024.
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